Question

hornton Computer Services, Inc. has been in business for six months. The following are basic ­operating data for that period: Month July Aug. Sept. Oct. Nov. Dec. Service hours 120 136 260 420 320 330 Revenue $ 6,000 $ 6,800 $ 13,000 $ 21,000 $ 16,000 $ 16,500 Operating costs $ 4,300 $ 5,300 $ 7,100 $ 11,200 $ 9,100 $ 10,600 Required What is the average service revenue per hour in each month and the overall average for the six-month period? Use the high-low method to estimate the total monthly fixed cost and the variable cost per hour. Determine the average contribution margin per hour.

Answer 1

Answer:

The total monthly fixed cost and the variable cost per hour is $1,540 and $23

The average contribution margin per hour is $27

Explanation:

The computation of the fixed cost and the variable cost per hour by using high low method is shown below:

Variable cost per hour = (High Operating cost - low operating cost) ÷ (High service hours - low service hours)

= ($11,200 - $4,300) ÷ (420 hours - 120 hours)

= $6,900 ÷ 300 hours

= $23

Now the fixed cost equal to

= High operating cost - (High service hours × Variable cost per hour)

= $11,200 - (420 hours × $23)

= $11,200 - $9,660

= $1,540

For computing the contribution margin per hour, first we have to compute the revenue per hour which is shown below:

= Revenue ÷ service hours

= $6,000 ÷ 120 hours

= $50

We know that,

The contribution per hour = Revenue per hour - variable cost per hour

                                           = $50 - $23

                                           = $27